Jamie Dimon, once a prolific buyer, is now an avowed builder.
Dimon, JPMorgan Chase's chairman and chief executive, was asked on Tuesday during his company's annual investor day how he plans to gain market share now that the banking sector has stabilized. Dimon responded by singing the praises of organic growth.
"Organic growth is marketing, sales, segmentation, deepening of relationships. M&A is what? Consolidating and cost-cutting and those are hard," he said, adding that acquisitions often stifle organic growth and can hurt customers. "We are in good shape to keep on doing organic growth. It costs money but is far more valuable over time."
The comments are perhaps surprising, given Dimon's involvement in the deals that built JPMorgan Chase, including the crisis-era acquisitions of Bear Stearns and Washington Mutual. Then again, any talk of returning to M&A would be a bigger shock since his company is essentially shut off from buying anything domestic or abroad.
Also, Dimon's purchases of Bear Stearns and Wamu, while a long-term positive for the company, have accounted for about half of its legal expenses in recent years. Leaders of other big banks, like Richard Davis at U.S. Bancorp, have implied that Chase's liability tied to those deals has dissuaded them to pursuing acquisitions.
Dimon realizes the irony of his statements, too.
"It is maybe peculiar to [tout organic growth] because I've been involved in so many mergers and acquisitions in my career," he said, later adding, "We have to do organic growth. We can't do an FDIC-insured institution. We could maybe do something overseas, but it is quite obvious regulators don't want us to be bigger. But organic growth is great."
Dimon's comments strictly apply to his company and should not be relied upon to determine the course of the broader banking sector, industry observers said. Still, they conceded that organic growth has less risk, and the potential for higher returns, since it involves deepening relationships rather than retrofitting other firms.
"Organic growth is more relationship accretive," said Jeffery Harte, an analyst at Sandler O'Neill. "It is about improving things over time rather than doing something that comes with big changes."
While organic growth can be more expensive than acquisitions, the true value of deals often relies on retaining customers and top-producing employees.
"When an acquirer takes over some of the key revenue producers are prone to going across the street," said Jeff Davis, managing director of the financial institutions group of Mercer Capital. "So you end up giving up some of the value you thought you were getting. Investors value organic growth because the risk of execution is low and the returns can be higher over time."
One exception, Davis noted, is when a company can acquire "something really cheap."
Still, it is tough to allow Dimon's comments to stand without considering the context of his company's size.
"To me, it is kind of commentary on the scale they've amassed," Harte said. "What would they buy? Now, it is not a matter of missing pieces. Now it is about maximizing what they have."
Dimon's comments on organic growth represent a "total disconnect" with the pressure from regulators to shrink JPMorgan Chase's operations, especially in light of the company's declaration that it is aiming to shed $100 billion in deposits from certain clients, said Rebel Cole, a finance professor at DePaul University in Chicago.
Dimon's comments were reminiscent of remarks Ken Lewis made during Bank of America's infamous 2007 investor conference, when Lewis outlined plans to grow organically. Instead, B of A went on a buying spree that included Countrywide and Merrill Lynch acquisitions that continue to haunt the Charlotte, N.C., company.
Still, Cole said Dimon's comments seemed like a positive spin.
"I think he sees the handwriting on the wall that says he simply cannot get larger," Cole said. "So what's he left to say? He can't tell investors he's going to get smaller, so he says they're focused on organic growth. But that is hooey."